Dubai office vacancies running at 25%

Up to a quarter of Dubai's office space is empty, with that amount expected to climb further this year as new buildings are completed, according to a report from Jones Lang LaSalle. An increase in the number of new offices helped push rents down by an average of 25 per cent in the second quarter, compared with the first. That represents a slowing rate of decline from the 45 per cent retreat in rents in the first three months of the year. "The global economic downturn has certainly been a major factor in reducing the level of demand as many tenants have either downsized, delayed their expansion plans or have waited to see where rents may settle," said Matthew Hammond, the head of agency at Jones Lang LaSalle MENA. An additional 2 million square feet of office space was delivered in the emirate in the quarter, according to the latest Dubai Office Market Snapshot. The total office space in Dubai as of June this year is about 33.6 million sq ft, the report said. Vacancy rates are hovering between 22 per cent and 25 per cent, and are expected to rise further over the next six months as new supply continues to be released. "Typically, in mature markets a healthy vacancy rate would be in the range of 10 per cent, offering occupiers more alternative options," said Ahmad Saidali, the head of investment at the commercial property consultancy CB Richard Ellis (CBRE) in Dubai. While landlords suffer from the increased office space on the market, the decline in rents may be helping Dubai become more competitive and attractive to potential tenants, Jones Lang LaSalle said. Rents for prime space now average Dh225 per sq ft across Dubai, excluding the Dubai International Financial Centre. This means prime rents in Dubai are below those in London, Paris, Hong Kong, Mumbai and Moscow. "The market has swung in favour of tenants over the past six months and there are some very attractive deals available in a range of newly completed buildings across Dubai, Mr Hammond said. "Tenants can take advantage of tomorrow's prices today and negotiate rents below current asking levels." Jones Lang LaSalle expects to see a further decline in average rents as more buildings are completed. By the end of 2011, another 25 million sq ft of office space is forecast to become available. Mr Hammond said some occupiers who no longer needed all the space they had committed to were subletting fitted-out offices, which also contributed to a decline in the rental market. Many companies are willing to sublet at below market rents in order to trim costs and fill empty space. CBRE says the biggest declines in the rental market are being seen in secondary locations, while prime spots in recently completed developments are faring better. "In prime locations like Downtown Burj Dubai, areas in DIFC controlled by private developers and across Sheikh Zayed road, rental prices have declined by about 35 per cent on average between January and August this year," said Mr Saidali. "The sharpest declines were seen in secondary locations like TECOM, Al Barsha, Deira, Garhood ? averaging between 40 and 55 per cent." ngillet@thenational.ae